Tag Archives: Bitcoin

Bitcoin is a peer to peer, cryptocurrency created in 2008 by a mysterious and unknown character named Satoshi Nakamoto. It is called peer to peer because all the computers that are mining for cryptocurrency are in a peer to peer network which allows them to easily talk to one another. It is called cryptocurrency (cc) because of how it is acquired.

Cryptocurrency is a little bit like a mineral like gold, copper silver etc. The way you mine gold is my digging in the ground, looking for something shiny, then testing to make sure that it is gold. To mine cryptocurrency your “shovel is a computer that can add/subtract/multiple and divide and your testing kit is a an internet connection so that your computer can talk to all the other computers that are also mining. Instead of digging in the dirt, to find something that looks like a bitcoin, your computer trys to solve a pretty difficult math problem that has many correct but not an infinite number of correct answers. Since there is a finite number of correct answers, every bitcoin that is found means one less bitcoin to find.

Once your computer thinks that it has found a correct answer, it will ask the asks all the other computers that are also mining for bitcoins if it is correct answer. When 51% of the mining computers agree that an answer is correct, the mining computer is awarded a Bitcoin by the network.

Here is an example. Lets say that the correct answer to match question to be awarded a bitcoin is “What is a whole number between 1-99 that ends in a zero.” The correct answers would be 10,20,30,40,50,60,70,80,90. If our computer started mining, in this case counting from 1-99, when it hit 10 it would realize that it found a correct answer. It would then ask all the other computers that are mining if 10 is a correct answer. Once a majority of those computers agree that 10 is a correct answer your computer would get a bitcoin and no other computer could ever be awarded a bitcoin for finding 10.

Buying and selling with bitcoins

Every bitcoin or fraction of a bitcoin starts life the same way – as a hidden number that must be “found” by a computer that is mining (doing calculations) to find bitcoins. Once a bitcoin is found it is placed in a digital “wallet”. It stays in the digital wallet. If the owner wants to sell, give or trade bitcoins (or a fraction of bitcoins), they typically enter the number of bitcoins to send, and the recipient’s bitcoin wallet address (likely a long string of numbers and digits). Then they press a button and the bitcoins are transferred through the bitcoin network to the recipient’s digital wallet. There are many reasons cited as benefits for buying and selling with bitcoins rather than currency or credit. Some of the most popular are:

(1) The transactions are anonymous. In the “real” world you can walk into a store wearing glasses, a hat a long coat and buy something with cash and be pretty anonymous. This is not really an option online since almost all transactions require a credit card or bank account. Bitcoins and other crypto-curriences level the online playing field by allowing the buyer to pay for goods and services online without revealing his or her identity.

(2) Also transaction fees are typically less than other digital or credit options. Credit card and debit transactions can range from 2% to 10%. Bitcoin transaction fees are typically less than 1%. Many are are low as .02%. Those signs that say “we charge $.50 for a debit card transaction under $10 (a 5% fee) would be more like we charge $.02 to .$.10 for bitcoin transactions under $10.

(3) It is extremely (if not impossible) to counterfeit bitcoins because validity requires over 50% of all the computers mining bitcoins to agree that a bitcoin is real. That is like having every person look at every bill and only if a majority agree will it be considered a “real” dollar.

The Bitcoin Blockchain is the shared ledger of all Bitcoin transactions. When you send Bitcoin what you are actually doing is updating your copy of the Blockchain with a new transaction and sharing your updated version with other computers on the Bitcoin network. Each computer reviews the new entries in the Blockchain for accuracy. As long as 51% of the copies of the Blockchain are legitimate, your copy will continue to be legitimate as long as your computer is not compromised.

The 51% attack

The Achilles heal of Bitcoin is the 51% attack. If nefarious Bitcoin miners control over 50% of the Blockchain they can in theory create an illegitimate copy of the Blockchain which will eventually be accepted as the real Blockchain by all the computers on the network. Most of us have thought that as more computers mine Bitcoins, this becomes harder to accomplish. However mining pools can threaten this balance. A mining pool is a collection of Bitcoin mining computers that act as one. When a computer joins a mining pool, the computer gives its computing power to the pool in exchange for a proportional amount of the Bitcoins mined by the entire pool. The administrators of the pool can basically control what Bitcoins are granted to each computer and details of the Blockchain copy on that computer.

ASIC computers have changed the game

Over the last six months ASIC computers have come on the market and have dominated the mining of Bitcoins. Right now a relatively low percentage of the computers mining for Bitcoins are ASIC and they control a usually large percentage of the computing power mining Bitcoins. Recently a mining pool has become so powerful that it threatens to control over 50% of the computing power mining for Bitcoins. If this does happen, the dreaded 51% attack can become a reality. At the time of this writing a mining pool called GHash.IO is controlling 42% of the Bitcoin mining network. Over the last 4 days this pool has gone from less than 38% of the mining capacity to 42% of the mining capacity.

What can be done to protect the Network?

The short answer is no one is really sure yet. The good news is that the best minds in Bitcoins are discussing the issue now on Reddit. Some of the most reliable miners are leaving GHash.IO for other pools to try and reduce the percentage of the network controlled by this dominate pool. Also, just because a mining pool can create a 51% attack does not mean that it is in the best interest of the pool to coordinate such an attack. In theory a 51% attack would cause a huge loss in confidence of Bitcoins, dropping the value and making their coins and computers less valuable. For now, I suggest everyone watch this chart closely, if it gets close to 50% consider moving at least some of your Bitcoins to Litecoins or Fiat.

Several of my fellow Bit-lievers and I have been recently talking about Bitcoin inflection point and if our favorite money has reached it yet. Can Bitcoin still fail? Can the powers that be squash it out of existence? While there are arguments on both sides, my friend Raj told us a story that he described as the moment he realized that Bitcoins have crossed the inflection point.

A mutual friend of our was recently out getting some pizza after what I can only imagine was a long evening of coding and/or partying. While waiting for his pizza, he realized that he’d either lost or left his wallet at home. Fortunately he did have his smart phone. Luckily for him this was a small, family run pizza shop. Also luckily, the owner was working. Our friend approached the owner and offered to either run home and get money, or give the guy some Bitcoins for the pizza. He half expected the owner to ask what the hell is a Bitcoin, but was pleasantly surprised when the owner said he would be happy to take Bitcoins and that he had a wallet. There was no “We Accept Bitcoins” sign in the window, no fancy Bitcoin card reader, just two people with Bitcoin wallets.

While not near the level of paying for a pizza with 10,000 Bitcoins, my friend’s story shows just how quickly Bitcoins can become a viable option for merchant payments. Pundits often talk about the requirement for merchant adoption to make Bitcoins real money. The real story is that anyone, anywhere, with a smart phone or computer or tablet can accept Bitcoins in a minute, for pizza or whatever else you might need after a late night of coding.

The Chinese citizen’s ability to move cash from banks, payment processors, or exchanges to Bitcoins is almost nonexistent. Anyone in China that wants to buy Bitcoins must purchase Bitcoin from private dealers. The immediate reaction to this news in the exchanges was a dump of almost all Ecoins. Also angry Chinese Bitcoiners were blamed for a hacking into the Central Bank of China. The value of the most popular Ecoins dropped as much as over 50% in a day or so.

Was this a Government move against Bitcoin?

The Central Bank of China tightly controls the Yuan value against the Dollar. China does not want currency to leave the country uncontrolled. Chinese citizens can not freely export currency out of China. This helps China stabilize the value of Yuan against other currencies. Almost all Yuan currency export happens through the Central Bank of China. When 3rd party payment processors were allowed to do Bitcoin transactions it was easy for Chinese citizens to export Yuan out of the country as Bitcoins. If too much Yuan value escaped the country in Bitcoin, the value of Yuan would decrease against the other global currencies.

Clamping down on Yuan to Bitcoin exchanges closes this loophole in China’s long establish currency control policy. From this perspective, the most recent announcement and regulations referring to Bitcoin are not a unilateral move vs. Bitcoin by the Chinese Government. The Chinese Government previously validated Chinese citizen’s right to buy, sell and trade Bitcoins.

While China continues to control it currency there is a general sentiment that China is opening up its markets and currency at a slow and measured pace. As China’s currency becomes liberalized, so to may its regulations around Bitcoin. It is possible that China’s most recent announcements were more about ‘too much, too fast’ than ‘not now and not ever.’

What does this mean for Bitcoins?

A few days after the most recent announcement, the Chinese exodus appears to more a statement on the health of Ecoins than an early sign of their demise. Things seem to have stabilized with Bitcoin price over $650 from a low of under $500.

Before the Chinese got big on Ecoins, the price was substantially lower than current value. Seemingly, global demand outside of China continues to increase. If this trend continues, Bitcoin could return to its historical highs in due course. Over time it is also possible that China will see Bitcoin as an asset rather than a threat.

While the bears hug BTC and LTC today, some Altcoins are getting hooked by the Bull and going for a ride. Here are the most popular Altcoins RIGHT NOW in Ecoin Club community. Please note that the coin exchange rates fluctuate quickly. Click the Coin name to see the most updated information and charts.

11/16/2013 – Popular Altcoins

Devcoins: Devcoin has been trending up since the 12th. After a quick retreat earlier today and yesterday the Decoin shows some bounce back. They are up as much as 8% in the last 24 hours.Goldcoins: Goldcoin trade against BTC and have had a stable ascend since last November. They are up as much as 18% in the last 24 hours.Worldcoins: Worldcoin started rising in late November and have continued to stay up. They are up as much as 35% in the last 24 hours.Diamondcoins: Diamondcoin has been around since July. As recently as November they were at about zero. The market seems to have picked up steam. while it is still well off its highs, they are up as much as 40% in the last 24 hours.

Tomorrow’s Altcoins?

Nobody can predict the future but these Ecoins are showing something that makes us want to get a few.

AmericanCoin: This coin was introduced back in June and it had a very slow and steady decline until a little past Thanksgiving. Then it started to show signs of life and a heartbeat. Since the 8th of December that heartbeat has been getting stronger.

Stablecoin: The name is kind of ironic because in the exchanges, this Ecoin is anything but stable. It has had some big pumps and big dumps. It is exchanging near its 10 day lows and no where near its highs. This Ecoin may still have some dump to go, but we are keeping our eye on it, just in case dump goes to pump.

Protoshares: This Ecoin is the precursor to a Distributed Autonomous Corporation (DAC) which is basically a peer to peer network for hire. Most Ecoins mining computers only mine for the Ecoin and/or process transfers of the Ecoin. The vision of the DAC is to put that computing power to ‘better’ use. Anyone may acquire shares in the DAC by mining or trading for Photoshares. The initial DAC is being developed by a company called Invictus Innovations Incorporated.

Once the company launches the DAC, the Protoshare holders will be able to exchange their Protoshares for shares of the DAC called Bitshares. The value of the Bishares is backed by the processing work of the DAC network computers. Some of these services could include payment processing, asset trading, domain name services (DomainShares), or really any service that benefits from peer to peer network computing – which is just about anything. For example, it is possible that i the future a DAC could operate like a cloud computing solution like Amazon Web Services. As a Bitshare holder, the Bitshare owner is entitled to a dividend for the value of the work performed by the DAC. Most other ecoins are only backed by the Ecoin’s value as a form of wealth representation and transferability. Photoshares aim be be valued by the work being performed by the network running the Photoshare.

The Bitcoin market is highly volatile. Bitcoin prices often swing by 50% or more. Now you can act like a big bank and buy and sell Bitcoin derivatives to help manage your risk. Unfortunately you will have to gamble your OWN money instead of your depositors. Also there is probably no government willing to bail you out and no case for ‘to big to fail’ if you lose your bet.

Derivatives are designed to help you manage your risk. You can manage your risk in Ecoins (virtual currency) by buying Bitcoin options that leveraged your dollars and offset the risk of Bitcoin prices going the opposite way that you predict. For example if you are holding Bitcoins (long position), you might want to bet (buy options) that Bitcoins are going to go down in price. This will mean that you ‘lose’ less if prices go down.

If you are holding cash instead of Bitcoins (short position), you think that Bitcoin prices are going to go down. In this case, you can buy options that prices will go up. This will offset some of your losses if prices do go up and you are sitting on cash. Dublin based Predictious recently launched Bitcoin option spreads which offers both long- and short-positions. It works about the same as typical option spread markets. You pay a fixed price for a fixed reward if you ‘bet’ correctly.

For example, you can bet on the future price of Bitcoin at a set day and time. For example, in the picture above, if you think that Bitcoins will be priced at or above $1400 on Jan 1, 2014 (Dublin time) you can “buy” the contract at $3.49 and get paid $10 if you are correct. If you believe it will not reach $1400, you “sell” the contract at $0.55 and get $10 if you are correct.

This afternoon my 5 year old daughter asked me “what is a Bitcoin”? I replied that it is a prize you get when your computer solves a math problem. At its core a computer is factoring to get a Bitcoin. Factoring is figuring out all the combinations of numbers that equal another number via multiplication. For example the factors of 4 are 2×2, and 4×1. So we played a game.

The game is kind of like math Jeopardy. Since she is just in kindergarten we used addition instead of multiplication. Instead of asking her what is 3+2, i told her I would give her the math answer and she would have to tell me all the addition and subtraction sets that equal 5 for all whole numbers between 0 and 10. To mine bitcoins, your computer is factoring numbers as big as 4000 digits or more.

Since she is just in kindergarten, we kept the math problems to just addition and subtraction between 0 and 10. The first answer that I gave her was 5. I asked her to start telling me the combinations of addition and subtraction between 0 and 10 that equal 5. First she asked me if it was 4 +1. I told her that yes that does equal 5, but that was not the answer that I was looking for. She continued to give me answers. 3+2, 5+0, 6-1, 7-2, etc. Eventually she got the correct answer 9-4.

When she got the correct answer I awarded her a Bitcoin which she promptly traded for two carrot sticks. The next time she solved it she exchanged her Bitcoin for 3 carrot sticks. The next time I told her that her Bitcoin was only worth one carrot stick and asked her if she wanted one carrot now or would rather wait until the next one she solved and find out I’d she could get more carrots then. She took the one carrot. Appreciation might be a lesson for another day.

Ecoin Insurance

When you buy or sell an Ecoin you can use escrow services like Local Bitcoin to increase the likelihood that you will get a fair trade. If a Bitcoin (or other Ecoin) is stolen it is almost impossible to get it back. There is no buyer guarantee, charge back or refund option. Also there is no way to delete the stolen Bitcoin and replace it. Basically the victim is without recourse.

Hard to hide stolen Ecoins

Unlike cars, jewelry and cash, it is extremely difficult, if not impossible to hide coins from the world and still use them. This is because of the peer to peer block chain. A thief is attempting to do it right now with 96,000 stolen bitcoins. You can actually watch it happen real time on the block chain. The block chain records every Ecoin transaction that has ever occurred. The entire world knows the exact network location (Bitcoin Wallet) of the stolen Ecoin. The entire world also knows exactly when that Bitcoin or portion of that Bitcoin is moved on the network from one Wallet to another.

Tagging stolen Ecoins

Because every ecoin transaction is recorded, the ecoin can also be tagged as stolen. The tag could follow the stolen Bitcoin around the network. The stolen ecoin index could be available to the entire peer to peer network and ecoin clients could look at the index to determine if a coin that they received is stolen.

How Bitcoin and Ecoin insurance could work

Ecoin holders would pay the insurance premiums with ecoins the same way we buy insurance now. When a ecoin is stolen the victim would make a claim against the insurance similar to claims against ordinary theft insurance. Once the insurer confirms that the coin has been legitimately stolen, the insurer would replace the ecoin. The insurer would become the rightful owner of the stolen ecoins.

The insurer could offer a bounty for the return of the stolen ecoins. The first time the coin is traded or held in an online wallet it would be identified as stolen and could be transferred back to the insurer for the bounty. Once the ecoin is back in the hands of the rightful owner, the stolen tag could be removed and the ecoin recirculated.

What is Ecoin Mining

Mining Bitcoins can be compared to mining minerals like gold, copper silver etc. The way you mine gold is my digging in the ground, looking for something shiny, then testing to make sure that it is gold. When you mine Ecoins, your shovel is a computer doing math and your testing kit is all the other computers on the Ecoin peer to peer network. Instead of digging in the dirt to find something that looks like a Ecoin, your computer tries to solve a difficult math problem. The math problem that has many correct answers, but not an infinite number of answers.

Since there is a finite number of correct answers to the math problem, as Ecoins are discovered there are less to find.

Mining computers requires a great deal of computing horsepower. If you do not have a powerful computer and a cost effective power supply, you will not be able to mine Ecoins. Unfortunately, this describes most of the people living in the world.

Part of the discourse around the pros and cons of Ecoins is that they can be easily used to launder illegal funds or purchase illegal goods. If anonymity and secrecy are good for crime, Ecoins are bad for crime. Buying with Ecoins is like buying with cash. Like cash, the identity of the buyer and seller are anonymous to one another and everyone else. However, the payment network that processes Ecoin transactions is complete transparent. Anyone in the world can look up the exact path of every Ecoin transaction of all time. This information is stored in the block chain.

The block chain is the perfect genealogy of every Ecoin. If people are still using Bitcoins in a million years, the Block chain will still be able to track every transaction back to the original Ecoin mining event. While the block chain increases at an amazing rate, the data is well organized and therefore easy to query. It is relatively simple to identify suspicious patterns and once one illegal actor is identified, it is easy to track the flow of currency every step of the way out.

Ecoins offer criminals no secrecy and only a a trivial amount of anonymity. Every Ecoin transaction requires a computer or internet device to have a unique (anonymous) identity on the Ecoin peer to peer network. While your identify on the network is anonymous, it is unique. Almost all web devices are identifiable by location or owner. Criminals get almost no anonymity and no secrecy when they transact criminal activities using Ecoin. The real anonymity of Ecoins is the anonymity the consumer gets from the seller, marketers, credit card processors etc. It is not the type of anonymity that protects or hides illegal activities. For the most part, law enforcement seems to be embracing the Ecoin movement, perhaps in part because it may make their jobs easier.